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A call date is the specific date on which a callable bond's issuer has the right to redeem the bond before its stated maturity. The issuer pays you the predetermined call price, usually at or slightly above face value, plus any accrued interest, and stops all future coupon payments at that point. Issuers exercise call options primarily when interest rates fall enough to make refinancing the debt at a lower rate worthwhile. Apple Inc. demonstrated this in February 2021 by calling $14 billion in bonds ahead of their 2023 maturity to refinance at lower prevailing rates.
Think of a call date like a prepayment clause in a mortgage: the borrower reserves the right to pay you off early if money becomes cheaper.
Most callable bonds have a call protection period, typically five to ten years from the issuance date, during which the issuer cannot call the bond. The first call date is when that protection expires and the issuer's option activates. Bonds trading at a premium are frequently quoted at their yield-to-first-call rather than yield-to-maturity, because buyers assume the issuer will exercise the call if it becomes economically rational.
After the first call date, many bonds become continuously callable, meaning the issuer can act at any time. Others permit calls only on specific dates such as quarterly or semiannual coupon payment dates. All call provisions are specified in the bond's indenture agreement and summarized in the prospectus.
Investment-grade corporate and municipal bonds are usually callable at or very near par. High-yield corporate bonds typically follow a declining premium schedule, such as 104% of par in year one, stepping down to 103%, 102%, and eventually par over subsequent years. That declining premium is a partial concession to investors who accepted the callable structure in exchange for a higher yield.
Optional redemption is the standard type: the issuer chooses when to call based on its financial interest. Sinking fund redemption requires the issuer to retire a scheduled portion of bonds periodically regardless of interest rates. Extraordinary redemption allows the issuer to call early if specified events occur, such as destruction of the project the bond financed. Municipal bonds commonly include extraordinary redemption provisions tied to insurance proceeds from casualty events.
Sources:
https://corporatefinanceinstitute.com/resources/fixed-income/call-date/
https://www.investor.gov/introduction-investing/investing-basics/glossary/callable-or-redeemable-bonds
https://www.finra.org/investors/insights/callable-bonds-your-issuer-may-come-calling
https://www.schwab.com/learn/story/callable-bonds-understanding-how-they-work
https://www.accountingtools.com/articles/first-call-date
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